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Best practice for shale oil and gas

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Independent verification offers a solution to arguments over regulation of hydraulic fracturing

Shale oil and gas, hydrocarbons trapped in hard and brittle rock at large depths, are a huge potential source of energy.

Estimated shale resources in the US and in 41 other countries account for 10% of the world's crude oil, and 32% of natural gas technically recoverable resources, according to June 2013 analysis by Advanced Resources International, sponsored by the US Energy Information Administration.

Yet, exploration and production (E&P) of shale oil and gas by horizontal drilling and hydraulic fracturing – aka well stimulation – have been met with widespread opposition, based on perceptions of health, safety and environmental risks.

In recent years, a number of operators, industry bodies and technical advisors have produced guidelines for best practice in shale oil and gas development. They include the International Association of Oil and Gas Producers jointly with the International Petroleum Industry Environmental Conservation Association, and DNV GL.

DNV GL provides independent verification of existing and planned shale gas activities based around its own recommended practices, as well as other standards and requirements selected by customers. In March 2014, the company launched the first ever global third-party verification system for comprehensive coverage of shale operation and risks.

“Independent verification of operators’ practices would have an immediate positive impact and solve much for governments considering arguments about regulation,” said Lars Sørum, director, Unconventional Gas at DNV GL.

He advised: “Industry and many regulators oppose regulation, but if you do not want it, you must ensure that your activity is not seen to need it. Hence a demonstration is necessary to show your stakeholders that you manage and mitigate your risk picture in a sustainable manner.”

For policymakers, he said: “Ask operators to show they are operating in a safe and sustainable way by requiring them to write up how they do things and having an independent party verify that. It works successfully in so many industries.”

It would, he said, also be in the industry’s best interests.

“Hydraulic fracturing has become the symbol of everything that is wrong with hydrocarbon exploration onshore, and in my view that is a fallacy.

Shale development carries risks, like any oil and gas E&P. But the risk elements of most concern in shale development are mainly on the surface rather than below ground,” Sørum said.

“They are related to transportation, chemicals handling, capturing gas from the wellbore and processing it, water and water management, land use and impact, and other elements.”

Two main risk elements below ground are: well integrity, basically keeping the water, hydrocarbon and fracturing fluid from formations where it does not belong; and, keeping fractures from natural faults or the heel of the lateral.

“Both these elements are perfectly manageable if you use the materials and procedures that you are supposed to, follow best practice, and know what you are doing,” Sørum said. “Campaigners play on risk elements, though these are manageable through best practice.”

Do operators adhere to best practice though?

Sørum replied: “In the US, the increased probability of something negative happening is driven by the fact that shale is a very marginal, high volume business requiring ever greater efficiency from operators in a depressed and largely unbalanced gas market.”

In turn, this creates pressure to drill more wells, more rapidly, with decreased spacing between them and with minimum overhead, he added.

“When you are forced to deploy new technologies in this situation, you increase the risk of something happening. There is a danger that without proper oversight and governance, you will run into trouble.”

The regulatory challenge in the US is complicated by there being different regimes among the states.

Sørum cited the example of flaring off gas associated with shale oil development, which is becoming an environmental and sustainability issue in the US.

“North Dakota has no restrictions on flaring. Texas restricts flaring and emissions of sour gas, sulphur oxide and nitrogen oxide, and methane slip, but even so the gas flared there can be seen from satellites to be of the same intensity as the flares in St Louis.”

The message is that if the industry wants to self-regulate, it needs to show it does not need regulating, he said.

Operators were supportive when the European Commission decided in January 2014 to abandon previous proposals to regulate shale gas exploration in the European Union (EU), opting to issue guidelines instead.

However, Sørum was disappointed by the change of mind. “It should be as simple as it is for offshore exploration and production, and for other operations that carry risk onshore, such as LNG plants, refineries and chemicals storage. Show me your safety case, show me your performance standards, show me your barriers and show me that they are being implemented. I cannot understand why we don’t do that for shale.”

“I am sure that serious players in Europe will do everything that DNV GL includes in our Recommended Practices,” Sorum said. The industry is aware of a small number of companies whose practices raise concern among the rest, he added. “The danger is that with no European or global standard, the way is open for some companies to cut corners, and they could destroy the whole industry.”

DNV GL’s third-party verification system involves the application to shale of the company’s well-proven tools, methods, software and protocols.

One example is the company’s ISRS tool which allows DNV GL to combine the best available technology practices and recommendations together with regulatory requirements into a dedicated special, generic protocol for use with shale assets.

“The protocol can be tailored for local and national conditions,” Sørum said. “Onshore E&P is a localised issue, and can vary between and within countries.”

Sørum stressed that the scheme is not an attempt to put a sheen on shale.

“The whole idea is to assess compliance, yes, but also to say that if best practice is to be achieved, then changes need to be made in the way things are being done.”

Best practices for shale operation are freely available as recommended practices from the DNV GL website.

“There is interest in them,” Sørum said. “But what really drives things is if a regulator insists on verification, as with the new EU Offshore Directive.” This legislation on the safety of offshore oil and gas operations is due to come into force in July 2015.

Applying these thoughts to the US, he said: “Shale oil and gas have been a success story, providing jobs and energy security for the country and to individual states to the extent that many see it becoming totally independent on imports of oil and gas.”

However, he added, questions remain if US activity is to be sustainable in its current form.

“Drilling activity is expected to increase exponentially. We watch gas being wasted at an alarming rate through flaring, and water resources are becoming increasingly strained.

“If the US is re going to build its energy policies around this abundance of energy resources, it must be sure that it can still be doing what it is doing now in 10 to 30 years’ time. Monetisation and effective transformation of wellhead gas to markets is essential for future sustainable business.

Leaving companies to self-regulate will probably mean having to put in place initial safeguards that may render some wells unprofitable, Sørum suggested.

He continued: “If third-party verification was required it would make things very predictable. Initially, operators would complain about it, but our experience of shale is that independent oversight benefits operators in terms of being able to demonstrate resilience and governance, and to become better operations overall.”